Federal Council Aims to Execute UBS Agreement with USA
Bern, 27.01.2010 - The Swiss Federal Council firmly believes that the ongoing threat of a conflict with the USA over legal and sovereignty matters – with all of its negative impacts on Switzerland as a center of finance and business – can be eliminated for good only by executing the UBS Agreement. Further to an analysis of the Federal Administrative Court's latest ruling, the Council decided on Wednesday to continue talks with the USA. A possible second step would be to put the Treaty Request Agreement to Parliament for approval.
In its benchmark decision of January 21, 2010, the Federal Administrative Court ruled against the granting of treaty assistance to the USA in cases of serious tax offense. The Court reached this conclusion on three separate points of law. It classified the Treaty Request Agreement of August 19, 2009, as merely a mutual agreement that permitted no change to terms that had been given binding definitions in the bilateral double taxation agreement. In the view of the Federal Administrative Court, the protocol to the double taxation agreement defines "tax fraud or the like" conclusively as tax or duty fraud. This does not include any serious tax offenses in the sense of the continued evasion of large sums of tax.
The Federal Council approved the Treaty Request Agreement after a careful examination of the legal situation and on the basis of expert opinions. The Federal Administrative Court viewed the legal situation differently. The Federal Council must acknowledge the Court's ruling and put it into action. It has thus instructed the Federal Department of Finance (FDF) to cancel a further 25 final decisions that are still pending before the Federal Administrative Court.
US Civil Action May Be Resumed
Given that the Federal Administrative Court's benchmark ruling is legally enforceable, it is thought that treaty assistance will be ruled out in around 4,200 cases. Only in around 250 cases may information be exchanged with the US authorities. If this problem cannot be resolved through consultations or negotiations, under the UBS Agreement the USA might take "proportionate rebalancing measures" to rectify the inequality that has arisen between agreed rights and obligations. There might therefore be a risk that the USA will resume the civil proceedings (known as the "John Doe Summons" proceedings) against UBS, and that a US court may rule that the bank must hand over data relating to around 4,450 accounts.
In a first step, the Federal Council will continue its talks with the US authorities to explain the situation from its perspective. The Federal Council's options for action would then be discussed with the US authorities. Furthermore, Switzerland will request that the USA provide detailed information on the client data that has been received under the disclosure program, which initial reports from the US authorities indicate has been extremely successful. In a possible second step, it might then put the UBS Agreement to Parliament for approval. This approach was indicated in the Federal Administrative Court's ruling as a possible solution. In any future appeals, the Federal Administrative Court could not then regard the Agreement as merely a mutual agreement. Rather, the Agreement would stand as a treaty of the same status as the older and more general bilateral double taxation agreement and, according to general rules of interpretation, would take precedence over the latter.
Provisional Application Allows Deadlines to be Met
An amendment to the Agreement should permit its provisional application from the date of signature. Here, the Federal Council is basing its actions on the authority granted to it under governmental and administrative organization law, which permits such steps to be taken to safeguard Switzerland's important interests, and in cases of particular urgency. This means that UBS can continue to fulfill its obligations to the Swiss Federal Tax Administration (SFTA). For its part, the SFTA can continue to conduct the treaty request process and issue the necessary final decisions. Although client dossiers in legally enforceable cases may not be sent to the US authorities until the Agreement has been approved by parliament, this approach makes it possible to comply with the deadlines set in the Treaty Request Agreement, which remains binding under international law.
Address for enquiries
Folco Galli, Federal Office of Justice, tel. +41 (0)31 322 77 88
Federal Department of Justice and Police